π§ Impermanent Loss Calculator
The hidden cost of providing liquidity.
Impermanent loss vs holding
Estimates for planning only, not financial advice.
Impermanent loss is what liquidity providers lose compared to simply holding the tokens, caused by arbitrageurs rebalancing the pool as prices move. If the price ratio doubles to 2.00x, the loss is (2 x sqrt(2) / 3) - 1 = -5.72%. On a $10,000 deposit, the LP ends about $572 behind the holder, before trading fees.
How to Use This Calculator
Enter the price ratio: current price divided by the price when you deposited, for the volatile token against the stable one. The calculator returns the loss versus holding.
Enter the price change ratio (e.g. 2 if the token doubled, 0.5 if it halved).
Read the impermanent loss percent and the dollar comparison on $10,000.
Weigh it against expected fee income. For the return side of DeFi math, our compound interest calculator models fee compounding.
The Impermanent Loss Formula
In a constant-product pool, arbitrage keeps the pool's price aligned with the market by trading against it, which systematically sells the appreciating token and buys the depreciating one. The LP's share tracks 2 x sqrt(p) / (1 + p) of the hold value. The loss is called impermanent because it reverses if the price returns to the deposit level, but prices rarely oblige, so treat it as permanent in planning. Fees earned while providing liquidity offset the loss, which is the whole economic question.
Worked Example
Deposit $10,000 split evenly when the token trades at $100: $5,000 buys 50 tokens and $5,000 sits in stablecoins. The token doubles to $200, a ratio of 2.00x. Simply holding would now be worth 50 x $200 + $5,000 = $15,000. The pool rebalances against you, so the LP position is worth $15,000 x 0.9428 = $14,142. Impermanent loss is -5.72%, about $858 behind the hold strategy. If the token instead halves to $50 (ratio 0.5), the loss is identical at -5.72%: the formula is symmetric, punishing moves in either direction.
When Providing Liquidity Makes Sense
Three situations survive the math. First, correlated pairs like stablecoin-to-stablecoin, where the price ratio barely moves and fees are nearly pure profit. Second, high-fee pools where trading volume pays multiples of the expected loss. Third, concentrated-liquidity positions managed actively in tight ranges, which multiply fee income but also multiply the loss if price escapes the range. What does not work is parking and forgetting a volatile pair in a quiet pool: the loss accrues and the fees do not cover it.
My blunt rule: estimate the loss for a 2x move in either direction, then demand fee income at least triple that before depositing. Most retail LPs would have done better holding, and the calculator above is the fastest way to see it before your capital learns the lesson.
Estimates for planning only, not financial advice.
Frequently Asked Questions
What is impermanent loss?
The shortfall of an AMM liquidity position versus simply holding the deposited tokens, caused by arbitrage rebalancing the pool as prices move. It grows with the price change and is symmetric in both directions.
Why is it called impermanent?
Because it disappears if the price returns exactly to the deposit level. In practice prices rarely return, so experienced LPs treat it as permanent and demand fee income that exceeds it.
How much do I lose if price doubles?
About 5.7%. A 3x move costs about 13.4%, a 4x move about 20%, and a 5x move about 25.5%. The loss accelerates with bigger moves, which is why volatile pairs are the most dangerous.
Do trading fees offset impermanent loss?
Sometimes. Fee income accrues steadily while the loss depends on the price move. Profitable liquidity provision needs fees to exceed the loss over the holding period, which favors high-volume pools and correlated pairs.
Which pools have the least impermanent loss?
Correlated-asset pools like stablecoin pairs or liquid-staking derivatives against their underlying, where the price ratio barely moves. Volatile-against-stable pools carry the most.
What is concentrated liquidity?
Uniswap v3-style positions that provide liquidity only within a chosen price range, multiplying fee income and capital efficiency. The tradeoff: if price leaves the range, the position stops earning and the loss concentrates.
Is impermanent loss the same as a real loss?
It is an opportunity cost versus holding, not a loss versus your deposit in dollar terms; the position can still be up in dollars while lagging the hold strategy. Compare against holding, which is the right benchmark.
Should beginners provide liquidity?
Probably not with volatile pairs. Start with stablecoin pools to learn the mechanics, measure fee income against the computed loss for months, and only then consider volatile pairs with eyes open.
What is divergence loss?
The same thing as impermanent loss under a blunter name: how far the pool position diverges from holding. Some protocols rebranded it because impermanent sounded like a promise that prices would come back.